What Are the Benefits of Government Assistance with Household Energy Bills? Evidence from Ukraine
In April 2015, the Government of Ukraine abruptly raised the tariffs of natural gas to residential customers, which were previously well below the cost of acquiring gas and delivering it to households. The tariff increase—700 percent—caused considerable distress to the population and led the government to scale up its existing energy assistance program, the housing and utilities subsidy program. This paper examines the welfare effect of the program and potential redesigns of the program. Using several waves of Ukraine’s Household Budget Survey, the analysis finds that electricity, gas, and fuels account for a considerable share of household income. After the tariff hike, the average household that did not receive the housing and utilities subsidy spends 11 percent of its income on electricity, gas, and fuels, implying that it meets the definition of “fuel poor.” The average share for households that do receive the subsidy is 6–8 percent. The housing and utilities subsidy cuts the rate of fuel poverty in half. It also brings considerable consumer surplus gains of 6–7 percent of income. This comes at a high price tag for the government, as the budget for the housing and utilities subsidy is 1–2.5 percent of gross domestic product. Considerable savings would be achieved with only a small loss of consumer surplus if the housing and utilities subsidy was cut in half. Linking the subsidy solely to income would also attain considerable savings, but at a high loss of welfare. The housing and utilities subsidy could also be paired with social tariffs, or an energy efficiency subsidy, with major savings for the government.
| Main Authors: | , |
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| Format: | Working Paper biblioteca |
| Language: | English |
| Published: |
World Bank, Washington, DC
2021-05
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| Subjects: | FUEL SUBSIDY, ENERGY ASSISTANCE, CONSUMER WELFARE, FUEL POVERTY, NATURAL GAS, FUEL PRICE, ENERGY EFFICIENCY, |
| Online Access: | http://documents.worldbank.org/curated/en/747101621621225723/What-Are-the-Benefits-of-Government-Assistance-with-Household-Energy-Bills-Evidence-from-Ukraine http://hdl.handle.net/10986/35630 |
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| Summary: | In April 2015, the Government of Ukraine
abruptly raised the tariffs of natural gas to residential
customers, which were previously well below the cost of
acquiring gas and delivering it to households. The tariff
increase—700 percent—caused considerable distress to the
population and led the government to scale up its existing
energy assistance program, the housing and utilities subsidy
program. This paper examines the welfare effect of the
program and potential redesigns of the program. Using
several waves of Ukraine’s Household Budget Survey, the
analysis finds that electricity, gas, and fuels account for
a considerable share of household income. After the tariff
hike, the average household that did not receive the housing
and utilities subsidy spends 11 percent of its income on
electricity, gas, and fuels, implying that it meets the
definition of “fuel poor.” The average share for households
that do receive the subsidy is 6–8 percent. The housing and
utilities subsidy cuts the rate of fuel poverty in half. It
also brings considerable consumer surplus gains of 6–7
percent of income. This comes at a high price tag for the
government, as the budget for the housing and utilities
subsidy is 1–2.5 percent of gross domestic product.
Considerable savings would be achieved with only a small
loss of consumer surplus if the housing and utilities
subsidy was cut in half. Linking the subsidy solely to
income would also attain considerable savings, but at a high
loss of welfare. The housing and utilities subsidy could
also be paired with social tariffs, or an energy efficiency
subsidy, with major savings for the government. |
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